June 23, 2009

Dissipation Studies

The United States structured settlement industry has drifted into an
era of unprecedented transition and change with stagnant annuity growth
and without any articulated industry strategic plan or strategic
planning process.

Retirement and/or death of first generation structured settlement industry leaders.

To recognize strategic change and successfully transition to settlement planning, a larger, more complex business, the structured settlement industry needs new focus, new vision, new leaders, and new "claimant centric" business models.

To better understand and grow their market, the new structured settlement leaders should begin by re-examining industry myths
about their customers (injury victims). Where the myths are wrong and misguided,
these new industry leaders should reject the historical myths and re-invent
structured settlements based upon truth not fiction.

Among structured settlement industry myths, two are especially pernicious, long-standing and related:

Myth #2: structured settlements enable injury victims to live free of reliance on government assistance.

What have been the consequences of these industry myths for the structured settlements?

Inefficient and anti-claimant business models;

Product sales instead of settlement solutions;

Bad business practices - whether or not illegal;

Lack of market research and product development;

Selectively incomplete education;

Defensive and anti-growth political strategies;

Abandonment of injury victim customers to the secondary market;

Stagnant structured settlement annuity growth.

What if both myths are false?

Expert commentators have already challenged both myths:

Adam Scales - When Professor Adam Scales first
questioned the myth of squandering injury victims in his remarkable 2002 University of
Wisconsin Law Review article titled: "Against Settlement Factoring? The Market in Tort Claims has Arrived",
he was reviled by leaders of the primary structured settlement market.
Seven years following the publication of Professor Scales' article,
structured settlement and settlement planning leaders continue to quote
false dissipation statistics and mis-characterize existing dissipation
studies to promote a negative and false psychological and financial
profile of injury victims.

David Lillesand - David
Lillesand, a leading social security and special needs attorney, has
spoken and written about the critical need for serious injury victims
to qualify for Medicaid. According to Lillesand, Medicaid is a "life or death" matter for such
individuals. Structured settlements do not enable serious injury
victims to live free of reliance on government assistance. To the
contrary, unless the annuities are paid into a special needs trust,
structured settlement annuity payments disqualify injury victims from
receiving Medicaid. Even when structured settlement annuities are paid
into a special needs trust, the legal rules for structured settlements
are either unaddressed by current legislation and regulations and/or uncertain
in their application and requirements.

Meet Jeremy Babener
, part of a new generation of structured settlement knowledge leaders, and a third year law
student at New York University. Babener has accomplished something no
one in the structured settlement industry has attempted - a
comprehensive review of historic dissipation studies involving injury
victims. Babener's new legal research paper, titled "Justifying the Structured Settlement Tax Subsidy: The Use of Lump Sum Settlements," includes extensive Appendices with detailed analysis of 12 dissipation studies relevant to U.S structured settlements.

Babener's paper, which examines and challenges the myth of the squandering injury victim:

Refutes the existence of any published study supporting the statistic that "90% of lump sum recipients dissipate their recoveries within five years".

Incorporates interviews from a cross-section
of structured settlement industry practitioners who support the
assertion of common lump sum dissipation based on personal and
anecdotal experience.

Calls for a modern study to ground the structured settlement subsidy in proven data.

S2KM begins its public 2009 strategic re-evaluation of
structured settlements with a blog series about dissipation studies featuring Jeremy Babener's research. In subsequent posts, S2KM will
summarize and review Babener's new dissipation paper and interview
Babener about his dissipation research.